The Facebook ETF Effect and the Reality

By Brendan Conway

Exchange-traded funds get lots of credit for “democratizing” investing. But they still can’t help the little guy enjoy the early pop of hot initial public offerings, and they won’t do it for Facebook.

About the best to be said for ETFs and the IPO market is that the warm, fuzzy feeling can rub off. That’s what happened this month to the three-month old Global X Social Media Index ETF (SOCL), which tracks social-media companies around the world. The fund is up about 15% this year, versus the Nasdaq Composite’s 12%.

The trickle of assets into the tiny but widely noted ETF increased after Facebook filed for what’s become the most eagerly anticipated IPO in years. You could see it in SOCL’s trading volume, which more than doubled on Feb. 1 and hit four successive records, according to FactSet Research Systems.

But the $5 million fund doesn’t buy a social media company’s stock until several days after the IPO, Global X executives told Barrons.com in a recent interview. Indeed, there wasn’t much logic for buying the ETF this month versus two months ago – and certainly not because Facebook happened to file its papers. If you can read a newspaper (or Web site) you already knew that Mark Zuckerberg was preparing to file.

Even so, there the ETF was, popping 7.4% on Feb. 2.

There are vehicles geared specifically toward newly public companies – depending on your definition of “new.” The laboriously named ETRACS Next Generation Internet ETN (EIPO) and ETRACS Monthly 2xLeveraged Next Generation Internet ETN (EIPL) are good examples, but those, too, have been mostly overlooked by investors.

The First Trust IPOX-100 Index Fund (FPX) tracks the average performance of U.S. IPOs during their first 1,000 trading days, according to First Trust.

Give a nod to strong returns where they’re due: Each of those three trackers are up by double-digits so far this year.

Incidentally, the industry has been pretty clear to broadcast what these funds do and what they cannot, even when belatedly.

Three months ago, UBS cut the word “IPO” from the names of the two ETRACS products. The first used to be called the ETRACS Internet IPO ETN. As the prospectus states, the exchange-traded note tracks Internet companies that have been public for fewer than three years.

It may be no coincidence that the four products mentioned in this post have a combined $33 million or so in investor assets. The sought-after “Bang!” of a fresh IPO remains the domain of the well-connected.

My partner and I stumbled over here by a different web page and thought I might
as well check things out. I like what I see so i am just following you.
Look forward to looking at your web page for a second time.

About Focus on Funds

As exchange-traded funds and other investing vehicles have ballooned in number, the task of figuring out what works well and what doesn’t has only gotten harder. Barrons.com’s Focus on Funds looks under the hood of ETFs, mutual funds and hedge funds for overlooked values, actionable ideas and the latest pitfalls for fund investors.